What is private health insurance?
Since 1984, many Australians' necessary healthcare expenses have been covered by the Medicare program. This is a federal program that partially or fully covers things like GP visits and essential surgery. Anyone with a Medicare number can be treated at a public hospital free of charge - or at least very low cost.
If you would like more expansive medical cover though, for dentist or physiotherapist appointments for example, you will likely need private health insurance. This broadly works like any other insurance policy. You make periodic repayments so that when you incur medical expenses covered by your policy, your insurer fronts some or all of the bill.
The range of coverage will vary from policy to policy. If you are looking for private health insurance, you’ll want to familiarise yourself with exactly what your policy covers.
What are the two types of private health insurance?
Private health insurance in Australia can be labyrinthine and covers a very broad range of services, but all can be grouped into two broad categories. Some comprehensive policies will cover you for both.
Having hospital cover on your health insurance policy means that you are covered for in hospital treatment at both private hospitals and as a private patient in a public hospital. Private hospitals typically have shorter waiting times, allow you to choose your own doctor and normally will be able to allocate you a room to yourself. As a private patient in a public hospital, you can be given a single room if one is available, you’ll receive treatment from your own doctor and you may be transferred to a private hospital for further treatment.
Medicare also contributes to some of the cost of private hospital services. For services on the Medicare Benefits Schedule in a private hospital, Medicare makes a contribution of 75% of the MBS. The private health fund you have hospital cover with makes up the remaining 25%.
Extras or ancillaries
The other main type of health insurance covers medical treatment outside of hospitals. This includes, but is not limited to the following:
Private hospital treatment
Massage and acupuncture
Mental health services
These are generally not covered by Medicare, at least not to the same scope.
Pros of private health care
Wider range of treatment options
Medicare only covers essential treatment, with a narrow definition. There are many healthcare associated costs not covered by Medicare, including ambulance costs, dental care, physiotherapy or the cost of glasses and hearing aids, among others. With private health insurance, you gain access to a far wider range of medical treatment.
Shorter waiting times and private rooms
In a private hospital, or as a private patient in a public hospital, if you have private hospital cover, you will usually experience significantly reduced waiting times, as well as the option of a private room, dedicated medical professional (such as one midwife through your childbirth), and more.
Pay less tax
Medicare is funded through the Medicare levy, included as part of income tax. For those earning above certain income thresholds, there is a Medicare levy surcharge that applies. The surcharge is an additional percentage of your taxable income that is taxed to fund Medicare.
>$180,000 (+$1,500 for every dependant child)
However, this surcharge does not apply to those with private health cover. If you are earning above these thresholds, the amount you spend on private health insurance could be offset by this tax relief.
Claim your private health insurance rebate
The private health insurance rebate is another federal government initiative designed to help make private health insurance more affordable for older or low income Australians. The rebate is tested against your taxable income, so higher earning people receive a reduced or zero benefit. You may be eligible for the rebate if you have private hospital cover, general cover for extras, or a combination of both.
Avoid paying unnecessary costs - lifetime healthcare cover (LHC) explained
Lifetime Healthcare Cover is a government initiative designed to encourage you to to take out and maintain private health insurance earlier in life. If you have not taken out private health insurance by the time you are 31, once you eventually do decide to get insured, you will pay an additional 2% LHC loading fee on top of your premiums for every year you are aged over 30.
For example, taking out your first private health insurance policy aged 40 means that you will pay 20% (10 years x 2%) in LHC loading. If you wait until you are 50, this becomes 40%. Your LHC loading continues to apply until you have had private health cover for 10 years.
Cons of private health care
You might be paying more than your fair share
Unlike several other countries (including New Zealand and the United States) health insurance premiums in Australia are not risk based, but community based. This means that everyone pays the same price for the same policy, not adjusted for the relative risk the person presents to the insurance provider. This includes for age and risk profile, such as smoker status.
In New Zealand or the US by contrast, the insurance company will make an assessment of an applicant (taking into account medical history, age, smoking status and some other basic health measures and indicators), and charge higher premiums for those deemed more likely to make a claim. It is similar to how car insurance works here; a 19 year old male who has already racked up several traffic violations will typically be charged far higher premiums than his seventy year old grandmother, for example.
This community system benefits those more at risk for serious health issues. It is often used as an example of the equity of Australian healthcare. However, it also means that young, healthy Australians likely subsidise the rest of the population and pay significantly more than they get back.
For some young people, this can mean they are better off not getting private health insurance. Some also buy junky basic policies once they earn more than $90,000 or turn 30 to avoid paying extra tax, in effect lining the pockets of private companies for a product they do not need.
This has been labelled as the private health ‘death spiral’ by critics.
Private health insurance policies are rarely completely comprehensive. There will usually be certain treatments or procedures that you are not covered for, so it’s a good idea to read the Private Health Information Statement that your insurer is required by law to provide for your policy. This will give you a more accurate sense of exactly what you are covered for.
Out of pocket costs
Sometimes, there is a gap between the amount you are covered for by your policy and what you are actually charged. For example, lets say you need a septum reconstruction. You have a private hospital cover policy that includes this so you are at a private hospital to get it done. The MBS at the time of writing has a schedule fee of $637.35. 75% of this is $478.05, which is the amount that Medicare will contribute. Your private health insurance will then contribute the remaining $159.30. However, the hospital you are at has charged you $720. You will need to make up the difference ($82.65). This out of pocket expenses can significantly reduce your overall benefits from paying for private cover.
What companies offer private health insurance?
Health insurance in Australia comes from a very diverse range of providers
Several banks offer health insurance packages, including Suncorp, ING, BankSA and Defence Bank. Some of the other big names in Australian banking have partnerships with other insurance companies. CBA for example offers health insurance provided by AIA.
Not for profit health funds
There are many private health insurance providers in Australia that are ran not for profit. The Hospitals Contribution Fund of Australia (HCF) and the Hospitals Benefit Fund of Western Australia (HBF) are the two largest (HBF is not exclusive to WA, with nearly 20% of its customers coming from elsewhere in Australia). There are also some health funds restricted for certain professions. Teachers Health and Defence Health are the two largest.
Health insurance companies
The largest health insurance providers in Australia are companies whose primary operations are health insurance. Bupa and Medibank are the two biggest by far, with an estimated market share in excess of 50%. NIB, CUA Health and AIA are some of the other prominent names.
What to compare between health insurance policies
Range of coverage
If you are in the market for health insurance, you can normally customise your policy to make sure you are covered for exactly what you want.
For example, if you think you could try to have a baby soon, you might want to opt for pregnancy cover if you desire private rooms and one midwife. If you’re struggling to conceive, you might wish to see if IVF is covered. If you’ve been a roofer all your life and feel like your knees or hips might give way, getting specialist cover for that might also be worthwhile.
The more comprehensive your coverage, the more expensive your premiums will generally be, so you want to make sure you aren’t paying unnecessarily for a service you don’t see yourself using. If you have perfect vision for example, you might decide you don’t need additional optometry cover from your private health insurance when you can claim a bulk billed eye test from Medicare every three years.
For most people, finding the right health insurance policy is a matter of finding the sweet spot where they pay the least for the most coverage. You can compare health insurance policies with Infochoice to find the policy that’s right for you. Premiums will also vary based on how many dependents you are planning to insure.
To make private health insurance policies easier to understand, the government has introduced a mandatory classification system. Every provider must classify their private hospital cover policy as either Gold, Silver, Bronze or Basic, with minimum standards of coverage to fall into each classification. Checking what policy your tier is in and then looking up the requirements for each tier is a good way to get a better sense of how much you are covered for.